KFM Weekly Investment Update: Friday, 04 October 2013

Local Market Summary

• The KSI was up 0.2% to 3,919.47 and Home index was down 1.2% to 8,227.35 for the week.

• BPNG in its Monetary Policy Statement has projected GDP to grow by around 5.0% in 2013 which is lower than Government’s forecast of 6.1% in the 2013 Mid-Year Economic and Fiscal Outlook (MYEFO) Report. Economic growth slowed in Q2 2013 due to PNG LNG construction phase approaching completion.

• Department of Treasury released its 2013 Annual Debt Issuance Plan following the release of the Mid Year Economic and Fiscal Outlook (MYEFO) Report. The MYEFO Report projected an increased K151.7 million to take the budget deficit to K2,700.8 million for 2013. The increase was attributed to cost overruns in Personnel Emoluments and lower expected tax revenue receipts. The revised 2013 financing requirement stands at K3,006.0 million.

• National Capital District Commission (NCDC) has delayed the enforcement of penalties of the Beetle Nut Ban for another month. This is pending legislative amendments to the proposed bill and awareness to be carried out.

• Bank of South Pacific (BSP) released a profit after tax of K113.35 million for Q2 2013 compared to K91.19 million, K105.74 million and K97.98 million in Q1 2013, Q4 2012 and Q3 2012 respectively. The strong profit growth in Q2 2013 was supported by strong growth in both lending and fee income.

• Horizon Oil (HZN) released (on 26 September 2013) the results of Tangu- 1 exploration well in PRL 21 as an elevated gas reading over their previous target. The exploration drilling on the site hit a rich gas column in the upper part of the Elevala
sandstone. The drilling encountered gas and water contact achieving the two primary objectives of the well; to prove hydrocarbon in the structure and to define the limits of accumulation.

• Nautilus Minerals Inc has been awarded favourable arbitration decision to proceed in the underwater mine in the Bismark Sea. The decision found the PNG Govertment in breach of the State Equity Option Agreement. PNG Government will comply by purchasing
30% interest in Solwara 1.

International Market Summary

• President Barack Obama has invited congressional leaders from both parties to discuss about reopening the government after the US failed to reach a compromise on the Continuing Resolution to fund government. So far, there are no hints that either the Republicans or the Democrats will give in to the other party’s demands surrounding ObamaCare and the US Debt Ceiling.

• USD weakens further on concerns over fiscal talk. Yields on US Treasuries fell across the curve due to a weaker-than-expected ADP jobs report. Yield on 10Y UST fell 3.3 bp to close at 2.62%.

• Easing political uncertainties in Italy support rally of Italian equities and bonds.

• Japan goes ahead with the sales tax hike to 8%.

• The Reserve Bank of Australia has kept interest rates on hold for the second consecutive month, in a further shift towards a neutral stance as improving data boosts hopes that previous cuts are lifting the economy. The cash rate remained at 2.5%

• PGK closed lower for another week against the USD and AUD. The Kina closed 1.8% lower against the USD to 0.3779 and 3.1% lower against AUD to 0.4002. Market talk suggests PGK will continue to weaken over the medium term. (Open PDF attachment below to see graph)

• In commodities Gold prices was down 1.4% for the week to USD 1319.80